6996739941

KliRWK lMIDUia iO A«C«illX ai*x ‘II

SESSION TOPIĆ: STOCK MARKET PRICE BEHAYTOR Session Chairman: Burton G. Malkiel

EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK*

Euoene F. Fama**

I. INTRODUCTION

The psumary role of the Capital market is allocation of ownership of the econom/a Capital stock. In generał terms, the ideał is a market in which prices providc aceuratc signals for resource allocation: that is, a market in which firms can make production-investment jleęislons, and inmtors can choose among the securities that represent ownership of firms’ activities under the

ption that security priccs at any time “fully reflect” all available in- a) Ac* ition. A market in which prices always “fully rcflcct⁰ availablc informa- t)

leient."    S) A'

Thłs paper reviews the theoretical and empirical literaturę on the efficient markets model. After a discussion of the theory, empirical work conccmcd with the adjustment of security prices to three rclęvant information subsets is considercd. First, tce<j* Jorm tests, in whkh the information set is just historical prices, are discussed. Then semi-ttrong Jorm tests, in which the eon-cern is whether priccs efficiently adjust to other information that is obviously publicly available (e.g., announcements of annual earnings, stock splits, etc.) are considered. Finally, sffong Jorm tests concemed with whether given in-vestors or groups have monopolistic aocess to any information rclevant for price formation are reviewed.^ł We shall conclude that, with but a few ex-ceptions, the efficient markets model stands up wcll.

Though we proceed from theory to empirical work, to keep the proper historical perspective we should notę to a large extent the empirical work in this area preceded the development of the theory. The theory is presented first

iudzc which of the empirical results are most